NTPC’s Jhabua Power bid hits NPA tag hurdle

State-owned power giant NTPC Ltd faces a Section 29A hurdle in its bid for Jhabua Power, a clause embedded in the Insolvency and Bankruptcy Code (IBC) that prevents bidders from buying insolvent companies if they themselves or their associate companies have a track record of default, according to multiple executives.
NTPC owns stakes in Ratnagiri Gas and Power Ltd and Konkan LNG. Both companies had defaulted on loans prior to the commencement of Jhabua Power’s insolvency proceedings.

The state-owned power giant that accounts for a fourth of India’s energy generation has made a ₹1,900 crore offer for Madhya Pradesh-based Jhabua Power under IBC rules. It has revised its offer downward citing the impact of Covid-19.

However, its offer has run into trouble over concerns over the designation of the accounts of its associate companies as non-performing assets by banks.


CARE Ratings downgraded credit facilities of Ratnagiri Gas and Power Ltd to ‘Default’ status on October 19, 2020 and had downgraded the status of Konkan LNG’s credit facilities to ‘Default’ on March 7, 2019, according to two separate notes accessed by ET.

As per IBC rules, if a bidder or its associate companies have any accounts that are classified as non-performing assets with banks one year prior to making a bid for an insolvent company, its bid could be disqualified unless it agrees to repay all dues including interest to the banks and clear its accounts.
Arcelor Mittal was forced to repay all dues of Uttam Galva Steel, a company that had been declared a non-performing asset by banks and in which it had a 30% stake to become eligible to bid for Essar Steel.

Emailed queries to NTPC Ltd and Jhabua Power’s resolution professional Abhilash Lal remained unanswered as of press time.

NTPC is said to have entered one-time settlements with banks for both the associate companies, though it has not cleared all dues, a mandatory requirement as per the rules.

Experts noted that the legal test would be to ascertain whether NTPC had management control of these companies and these could be classified as associate companies.

“In the case of NTPC, it remains to be seen if the conditions of management and control apply to their investments in the two defaulting companies. If so, IBC does mandate that all dues including interest should be cleared before their bid could be eligible,” said Aditya Shankar, advocate, Supreme Court of India.

NTPC’s offer competes with one from Adani Group and Gautam Thapar’s Avantha Holdings. The latter also happens to be the promoter of Jhabua Power.

Banks have rejected the Avantha Holdings offer citing investigations by government agencies into Thapar group companies. Yes Bank recently informed the Delhi High Court that it has removed the ‘fraud’ tag on the account of Avantha Holdings after conducting a forensic audit. It had previously red flagged the account to the Reserve Bank of India.

Avantha Holdings has offered to repay Rs. 1900 crore to banks - the portion of the debt of the company that has been classified as sustainable based on a study - after it is converted into a long term loan. It has proposed that a further Rs. 1500 crore of the debt be converted into a bond.

Jhabua Power's total debt is Rs. 3400 crore.

Adani Group's offer is said to be the lowest of the three offers, though ET was unable to ascertain the exact terms of its proposal.

Jhabua Power is said to have generated operating profit of Rs. 450 crore for the financial year ended 31 March 2021. The company has a 600 megawatt operation thermal power plant which has power purchase agreements with atleast two state governments. It also has the physical infrastructure to be able to build a second power plant of similar capacity.